White House: We Thought We Were Down To The Details

President Obama and White House officials earnestly believed they were closing in on a deficit-reduction deal with only three remaining sticking points until Speaker John Boehner (R-OH) pulled the rug out from under them and walked away from the negotiating table late Friday afternoon, White House officials said Friday night.

As of Thursday, Obama and Boehner had been working on a grand bargain that would produce roughly $3 trillion in savings over 10 years, the officials confirmed. But talks broke down along three major differences: the two sides were $400 billion apart on taxes, Obama rejected a last minute demand from the GOP that the deal include a repeal of the individual mandate in healthcare reform, and the two sides were still haggling over a difference of $40 billion in cuts to Medicaid, according to the White House.

Obama and Boehner had a lengthy discussion Thursday afternoon, and Obama called him back Thursday night. But the Speaker waited until 4 p.m. Friday to return the phone call with the disappointing news that he was once again walking away from the talks.

Reaching the appropriate balance between taxes and entitlement was "the Sword of Damocles hanging over the everyone's heads," said a White House official.

"We would have the [political] risk [involved with cutting] Medicare and Medicaid -- theirs was the upper-class tax cut."

"It was a little surprising," another White House official added. "We were getting calls today that we were down to the technical details."

It was the second time in a month that Boehner had walked away from talks, the first coming July 8. Boehner's second in command, Majority Leader Eric Cantor (R-VA), also pushed away from the table last week, stubborning resisting that any type of net tax increases be included in the package.

But a week ago Friday Boehner and Cantor met with White House Chief of Staff Bill Daley and continued to meet throughout the weekend in the hopes of striking a deal that would still leave enough time for Congress to put it in writing and pass it through both chambers. Detailed talks continued throughout the week with the last meeting taking place Thursday morning.

Senate Democrats were furious Thursday when they heard reports that a deal was close and they had been left out of the final negotiations. Office of Management and Budget Director Jack Lew left a meeting with Boehner to try to assuage Senate Democratic leaders' concerns, and was largely successful, a White House official noted.

Before Boehner walked away "if you had asked me, if I had gone to the Senate Democratic caucus" with a final deal Friday and whether they would accept it, "I would have said, yes, they're close," said an official.

Most of the real differences remained, as they have throughout the negotiations, focused on net tax increases.

As of Thursday morning, the two sides were still $400 billion apart. Boehner had agreed to raise $800 billion in revenue over ten years from allowing the Bush tax cuts to expire at the end of next year on the wealthy -- those making $250,000 and above -- but the President wanted an additional $400 billion more to provide more balance to offset cuts to entitlements such as Medicare and Medicaid.

White House officials said they continuously stressed their willingness to dial parts of the deal up or down, but in the end it had to be balanced.

Boehner, however, said the $400 billion demand on taxes came suddenly when the Senate's Gang of Six announced their deal, which included roughly about $1.2 trillion in revenue raisers. Just the day before, the White House countered, Boehner had asked that any deal include a repeal of the individual mandate in the healthcare reform law, including the Independent Payment Advisory Board , which were non-starters for the administration.

The two sides were incredibly close when it came to costs savings for Medicare and Medicaid, with the President agreeing to $425 billion in savings over 10 years. Republicans wanted roughly $40 billion more than Democrats would agree to as of Thursday. Some of the savings would be achieved by gradually increasing the eligibility beneficiary bracket from 65 to 67 over a period of many years.

"In a multi-trillion package that gap there was [only] in the tens of [billons] of dollars," a White House official remarked.

The would-be deal also included a loose agreement to prevent the future shortfall in Social Security, but the two sides differed in the approaches they wanted.

Despite the angry reaction at the White House, officials said they remained hopeful they could reach a major deficit-reduction deal before the Aug. 2 deadline to raise the debt ceiling or throw the nation into default.

"I think we're all tired," an official said. "I think that's true on both sides of Pennsylvania Avenue...The stakes are very high, and the President went a very long way to make not just a gesture but real moves along the ideological divide...and we are still focused on getting that done."